I. Introduction

For the purpose of this
paper, I do not propose to "re-invent the wheel." I intend, however, to make use
of various forms of "spokes" so that they may be adapted to form a vehicle which
can be used to deal with rent renewal disputes.

In considering how to approach the subject matter, I attempted, with limited
success, to find other articles, papers, or textbooks published in Canada.
Little was found.

The subject matter of alternative dispute resolution and, in particular,
arbitration, has been dealt with in Canada and in England for well over a
century. In fact, recourse to the arbitration process has been common practice
in England since the middle ages and was codified in 1698, 9 Will. 3, c. 15.
Arbitration has been defined in Halsbury as:

. . . the reference of a dispute or difference between not less
than two parties for determination, after hearing both sides in a judicial
manner, by a person or persons other than a court of competent jurisdiction.

2 Halsbury's Laws of England, 255 (4th
ed.)

The alternative method of determining rent
renewal disputes is to leave the matter to an appraiser (in England referred to
as a valuator or surveyor) where parties agree on one person, the appraisal
expert, to determine the new rent. When this, in fact, happens no other
appraiser is instructed and no submissions are made.

The appraiser makes his or her determination using his or her expertise on
valuation solely. The Decision Making Process is not within a quasi judicial
framework. The advantage of using an appraiser is, of course, speed and costs.
The disadvantage may be involved in the fact that the determination by an
appraiser, acting as an expert, is quite inappropriate to a point of law, even
when involving a question of the construction of a lease. If a rent review
clause provides for determination by an expert, and the determination involves
deciding a point of law, the parties seeking to raise the point can only, in the
absence of consent, raise it by commencing proceedings for declaration in the
Supreme Court. This is less flexible and likely to be less effective than having
the point decided in the course of an arbitration.

A. Why Arbitrate?

Subject to my comments regarding mediation, there is really no viable
alternative. One must remember that by the very essence of the use of a rent
renewal clause the parties will continue to deal with each other on an ongoing
basis in a landlord/tenant relationship for a specific period of time; that is
to say, the rent renewal period or periods. The alternative would be that the
parties agree ahead of time, presumably at the time of drafting the initial
lease, as to the rent renewal rates to come into effect at some time in the
future. This, of course, would be done in a vacuum, with the obvious
disadvantages to both parties, having regard to the value of the rental space
and the exigencies of business in futuro. Lastly, the subject matter is
not one which would lend itself to the parties being litigants in court ab
initio.

B. Advantages and Disadvantages of Arbitration

Some of the advantages of arbitration are as follows:

Speed at which an arbitration may be held;

The parties may have a continuing relationship after the arbitration and,
therefore, the form of decision making would be more conducive to private,
binding resolution of issues as opposed to court order enforcement between two
litigants;

The parties can choose the decision making form;

The parties can choose the decision maker based upon his or her expertise
in the area;

The award is private;

There is finality.

The downside, or disadvantages, are as follows:

The cost of arbitration is not necessarily cheaper nor less time
consuming;

Although limited, an award is reviewable by a court of competent
jurisdiction, but then again, so is a decision of the court at the trial
division level;

The arbitration's space must be rented;

There may be difficulty in sitting continuously because of other
commitments of the arbitrator or arbitrators or counsel.

Some of these
matters have been addressed by way of statutory terms set out in the
Commercial Arbitration Act of British Columbia and recent decisions
dealing with the court's involvement in the review of arbitrators' decisions.
I do not propose, at this time, to deal with the development of the
Arbitration Act in British Columbia and its adoption from English Law,
except to say that the present Commercial Arbitration Act, 1986, is as a
result, to a great extent, the creature of the Law Reform Commission of British
Columbia, Working Paper Number 25. I will deal, to some extent, with that Act
later in this paper.

C. Mediation

Before continuing and elaborating on the arbitration process, it is well to
consider one of the other forms of alternative dispute resolution - that of
mediation.

While mediation is a process without a final result imposed upon the parties
by the intervenor; the intervenor, using his or her skills, actively assists the
parties in resolving their dispute so that there is a consensual binding
agreement; usually ending in the form of minutes of settlement or a written
amendment to the original agreement.

Some of the advantages of mediation are:

The decision is private;

Both sides leave the process in a win/win situation;

There is no "loss of face";

Costs are significantly cheaper than arbitration.

Mediation has
been described by Riskin and Westbrook in their publication Dispute
Resolution and Lawyers (St. Paul, Minn., West Publishing Co. 1987) in terms
of certain tasks that are performed by a mediator, namely:

Agreeing to mediate;

Understanding the problem(s);

Generating options;

Reaching agreement;

Implementing the agreement.

I do not propose to deal with the
various techniques used by mediators, except to state that the techniques vary
depending on not only the nature of the dispute, but also the personalities and
goals of the participants. The mediator's role will fluctuate between a passive
and active role, generally tending to the more active role.

The process in a rent review situation may be as simple as dealing with the
parties and their counsel after each party has obtained an appraisal report. The
mediator may be able to deal with the scenario without requiring disclosure of
those reports to "the other side."

Where costs are a governing factor, the arbitration process may be too
expensive and time consuming - serious consideration should be given to the
mediation process, using a lawyer who is not only skilled in the process, but
also in the subject matter.

II. The Process

For the purpose of this
section of the paper I have assumed that both the landlord's and tenant's
solicitor, and indeed the landlord and tenant, are dealing with an existing
lease containing some form of option to renew and an arbitration clause.

A. Procedure

WHAT

WHEN

WHO

1.

Read the Lease

At least two months prior to the time upon which the option to renew
can be exercised and when first instructed

The parties to the lease, their agents and the solicitor for each of
the parties

2.

Repeat point number 1

3.

Serve option to renew notice in writing

As directed by Lease and any modification

Generally from the tenant to the landlord

4.

Review renew notice

Promptly upon its receipt

The landlord, its agent or solicitor

5.

Confirm acceptance or rejection of the option to renew notice

Very promptly upon its receipt

The landlord, its agent or solicitor

6.

Acknowledge confirmation of acceptance of the option to renew

Within a reasonable time frame after delivering option to renew

The tenant, its agent or solicitor

7.

Assuming option to renew is accepted, attempt to ascertain value of
premises pursuant to the terms of the lease

Promptly

The landlord and tenant, their respective agents and
solicitors

8.

Attempt to agree on new rent

During time period permitted by lease

Both parties and their respective agents and solicitors

8A.

Consider mediation

After a boni fide attempt to agree on a new rent

Both parties and their respective agents and solicitors

9.

Seek to agree upon a suitable person as arbitrator

Agreement is not reached as to a new rent within the time limit
permitted under the lease

Both parties, their respective agents and solicitors

10.

Obtain an appraisal of the premises, on the basis of the terms set
out in the lease, from a qualified appraiser

Promptly, either just before or at the end of the period of time set
out in the lease, prior to the matter going to arbitration

The respective parties, their agents, on advice of their
solicitors

11.

Seek to agree upon a suitable person as sole arbitrator or seek the
suitable person as your nominee to the arbitration board

Agreement is not reached at the end of the negotiating process

Both parties on the advice of their solicitors

12.

If a tribunal is to be used as opposed to a sole arbitrator, then
give input as to who your nominee should suggest to be the chairperson
of the arbitration

Promptly after the appointment of your nominee

The parties' solicitors with instructions from the parties
respectively

13.

Read the Commercial Arbitration Act at least once

Just prior to stage 9

Each party's solicitor

14.

If the parties fail to appoint, then make application to the Supreme
Court of British Columbia for an appointment pursuant to the
Commercial Arbitration Act

Promptly if no agreement can be reached as to the appointment

Each party's solicitor

15.

Once a chairperson or sole arbitrator has been appointed, either by
the parties or pursuant to a court order, obtain and review carefully
the appraisal report received. In fact, meet with the appraiser before
he prepares his final report to ensure that the appraiser has considered
all relevant matters and in particular, instruct the appraiser of the
basis upon which the valuation is to be made

Promptly just after the appointment procedure

The respective party's solicitors

16.

Consider whether or not to deliver to the other party a
Calderbank offer

At any time during the arbitration process subject to the facts and
circumstances of each case

The respective party's solicitors after obtaining instructions from
client

17.

Attempt to agree with opposing counsel as to a number of matters,
including: a) facts; b) measurements: c) comparables;
d) one appraiser each; e) dates and place of hearing; f)
viewing of premises; g) other

Within two weeks of the appointment of the sole arbitrator or
chairperson of the arbitration board

The respective party's counsel

18.

Expect call from chairperson of the arbitration board or sole
arbitrator

Within one week of the appointment of the arbitrator

Members of the arbitration board and respective counsel of each
party.

19.

Attend to the delivery of any preliminary material which is required
by one party to the other

The appropriate time prior to the hearing

The respective counsel

20.

Deliver appraisal report or reports to the other side

Within the time frame required under the British Columbia
Evidence Act and the Supreme Court Rules, if applicable

The respective counsel

21.

Prepare case

One month before notice is served pursuant to point number 3
above

All parties

B. Comments on Certain Stages
of a Typical Rent Review

1. Service of Notice

It is important from both the landlord's and tenant's points of view to read
the lease at various times during the life of the lease and, in particular, just
prior to the exercise of the option by the tenant, to refresh one's memory. The
parties, particularly the tenant, should note the relevant time limitations and
observe any stipulations as to the form of notice and as to the service.

Checking assignments and changes of name may also be necessary to obtain a
preliminary valuation in order to include a figure in the notice, or to give an
indication in a "without prejudice letter."

Particular attention should be placed upon the "use" section and the terms of
the option to renew and any relevant factors which would bind an arbitrator in
reaching his or her decision. The amendments to the addresses for service should
also be noted so that one may not be in breach of any "technical" matter.

2. Responding to Notice

When, as in the usual case, the landlord receives the option to renew notice,
the landlord should promptly review the terms of the lease and the validity of
the notice. In circumstances where the landlord is in disagreement with the
exercise of the option to renew, the landlord should review the lease to
determine whether or not the tenant is in breach of the lease such that it will
lose the right of renewal.

If performance of the Lessee's covenants is made a condition
precedent to a right of renewal, the onus is upon the Lessee to show due
performance: Loveless v. Fitzgerald, supra;Fingold v. Hunter,
[1944] O.W.N. 287, [1944] 3 D.L.R. 43 (C.A.); Richter v. Koskey,
[1953] O.W.N. 746, [1953] 4 D.L.R. 509 (H.C.).

Williams and Rhodes, Canadian Law of Landlord and
Tenant, Sixth Edition, Volume 2, p. 14-8

In McLauchlin v.
Bodnarchuk (1957), 8 D.L.R. (2d) 596, 22 W.W.R. 60 (B.C.C.A.), the right
to renew was conditional upon rent being duly and regularly paid. Rent was
paid late three times owing to the negligence of bankers and it was held
that exact punctuality was not absolutely required.

Williams and Rhodes, Canadian Law of Landlord and
Tenant, Sixth Edition, Volume 2, p.
14-9

In an unreported decision, 5000
Kingsway Ltd. v. F & A Enterprises Ltd., d.b.a. Peachy Keen Restaurants,
New Westminster Registry No. SO13805, Mr. Justice Hogarth dealt with a number of
issues between a landlord and tenant wherein the landlord refused to accept the
option to renew from the tenant, on the basis of:

The tenant was in default in not serving the Notice properly or on time;

The landlord waived strict enforcement of the lease;

The landlord was estopped from strict enforcement of the lease;

The court should exercise its discretion to relieve from forfeiture.

Because a number of issues dealt with respect to options to renew,
this case should be reviewed in its entirety by counsel on behalf of any
landlord or tenant when dealing with a situation where the two parties are not
ad idem with regard to the exercise of an option to renew.

A review of the authorities indicates that the court has tended
to exercise its discretion against forfeiture provided the landlord does not
suffer serious financial loss or prejudice.

His
Lordship granted relief from forfeiture. He felt it was a proper case in which
to exercise discretion under s. 21 of the Law and Equity Act. The lease
renewal was, therefore, held valid.

3. During Negotiations Between Parties

Monitor course of discussions. Is agreement possible? Is the other side
dragging its feet? Are there any points of law which should be clarified with
counsel as an aid to negotiation? What are the costs of fighting the review
likely to be? Is it worth it?

4. Time for Appointment

Should a move be made or should negotiations continue? Should an attempt be
made to agree to the appointment of a nominee or chairperson?

Take instructions from client and appraiser as to the name to suggest and to
object to.

5. Making a Calderbank Offer

(Calderbank v. Calderbank, [1976] Fam. 93, [1975] 3 W.L.R. 586:,
[1975] 3 All E.R. 333: 5 Fam. Law 190 (C.A.). In view of s. 11 of the
Commercial Arbitration Act, the parties should carefully review whether
or not they wish to establish a process by which they will be entitled to costs,
subject, of course, to the terms which may be explicit in the lease itself as to
costs.

The principle set out therein is for a procedure for payment into court where
a payment into court is not available; and is, therefore, applicable to rent
review arbitrations.

The Calderbank offer is one of three forms of offers, the other two
being the open offer, where it is desirable to make it known to the arbitrator
during the course of the proceedings that one party is prepared to offer (or
accept); the other being a "without prejudice" offer, where one party wishes to
make an offer in the hope that it will be accepted, but fears that it will be
prejudiced if the arbitrator knows that he is willing to offer (or accept) a
particular amount.

The Calderbank offer is used where a party who wishes to protect
itself against liability for costs may send the other party an unconditional
written offer, setting out the terms upon which it is willing to settle the
dispute. The offer should contain a figure for the rent and also make
appropriate provisions for costs incurred up to the date of the offer. It is
suggested that the appropriate provision for these costs will often be that each
side should bear its own costs, plus one-half the arbitrator's fees and costs to
the offer date. The Calderbank offer should contain the following phrase:

Without prejudice save as to costs . .
.,

so that it may be produced to the arbitrator at the
appropriate stage in the proceedings, but not before.

The use of the Calderbank offer is consistent with the policy of law
to encourage the compromise of disputes.

The effect of a Calderbank offer is that if an offer has been made
which, if accepted, would give the accepting party a result better than it would
have achieved by continuing the arbitration, prima facie the offering
party should be awarded its costs from the date when the offer should reasonably
have been accepted.

It is sometimes argued that, in a dispute as to quantum only, a Calderbank
offer should be taken into account even if it is not quite enough to give
the other party all that it has achieved by the award. The argument usually is
that the offer, although not quite equal to the award, was so near that it was
unreasonable for the other party to continue with the arbitration to achieve
such a minor improvement.

It is suggested that the onus should be upon the party seeking to gain the
benefit, by way of costs, of a Calderbank offer, to make it generous
enough to overtop the likely award. However, this matter is for the arbitrator's
discretion as set out in the Commercial Arbitration Act.

Again, the use of a Calderbank offer and the jurisdiction of an
arbitrator to award costs may be curtailed if the parties to the arbitration
have, in the lease itself, provided for other provisions as to costs, thereby
stating that certain provisions of the Commercial Arbitration Act are
inapplicable - the opting out procedure.

6. The Arbitrator

In dealing with the arbitrator, consider early on in the proceedings whether
there are any interlocutory matters which require attention, including any
agreement as to facts or certain facts, number of appraisals allowed, and
scheduling of witnesses.

III. Object of Rent Review Provisions

There is really no dispute that the general purpose of a
provision for rent review is to enable the landlord to obtain from time to
time the market rental which the premises would command if let on the same
terms on the open market at the review dates. The purpose is to reflect the
changes in the value of money and real increases in the value of the
property during a long term. Such being the purpose, in the absence of
special circumstances it would in my judgment be wayward to impute to the
parties an intention that the landlord should get a rent which was
additionally inflated by a factor which has no reference either to changes
in the value of money or in the value of the property but is referable to a
factor which has no existence as between the actual landlord and the actual
tenant, i.e., the additional rent which could be obtained if there were no
provisions for rent review.

The arbitrator must deal
with three questions:

How am I to interpret the rent review provisions and parameters as set out
in the Lease documents?

What is the salient evidence to be extracted from the written and oral
testimony of the experts in assisting me in coming to a determination?

What is the weight and scope attached to the evidence of the non-expert
witnesses which may assist me with respect to that determination?

In
order to lay the foundation to accomplish this objective, one must initially
turn to the terms and conditions set out in the rent review clause. As stated in
Halsbury's Laws of England, Volume 27, p. 166 at paragraph 215:

A rent review clause properly so called is a clause which
permits the lessor (or lessee) to call for the reconsideration and
reassessment of the amount of the rent. At stated intervals, and in
accordance with the procedure laid down by the clause, the new rate of the
rent is agreed by the then landlord and tenant or determined by the
process laid down in the lease, the new rate applying until the next
review date or the expiry of the term. Usually, if the new rate has not been
agreed by a stipulated date the clause provides for reference of the dispute
to an independent person, usually a surveyor, who may be appointed to
function as an arbitrator or as an independent valuer, and who will value
the demised premises in accordance with the formula laid down in the
clause. (emphasis added)

IV. Interpreting Rent Review Provisions

See
my article in the Advocate, November, 1989 attached as an Appendix to
this paper. Also see my article in CLE Commercial Leasing, Annotated Precedents,
June 1996, Chapter 15, Arbitration and Mediation.

In interpreting the rent review provisions I refer you to the quote in
Basingstoke, supra.

The courts in British Columbia have dealt with the interpretation of rent
review provisions in No. 100 Sail View Ventures Ltd. v. Janwest Equities Ltd.
26 R.P.R.(2d) 105, where Mr. Justice Tysoe dealt with the fair market value
of bare land in question, coupling that value to the "use" section in the Lease.
Essentially, he came to the decision that the fair market value must be based
upon the limited use section in the Lease. In that case the land was to be used
for a Hotel and related hospitality businesses and not for any other purpose or
business.

The British Columbia Court of Appeal took a contra view, finding that in
fact, the option to renew clause did not specifically refer to fair market value
as bare land for the specific use. The Court of Appeal said that it was
incumbent upon the parties to express this restriction in clear terms in the
Lease.

The English authorities commencing with Basingstoke and Deane Borough
Council v. Host Group Ltd. [1988] 1 All ER at 824 take the view of, or more
closely related to that expressed by Mr. Justice Tysoe in the first instance. In
Basingstoke, Nicholls L.J. states at page 828:

We
pause here to observe that foremost among the provisions in the existing
lease which the tenant is anxious to have taken into account when the ground
rental value of the site is reassessed now and on future rent reviews are
those relating to user. A long lease of a site restricted to user as a
public house is likely to command a lower rent than the lease of a site
whose user is not so restricted. If, in years to come, planning permission
were obtained for some more profitable use, on the landlord's argument the
valuer would be entitled and required to value the site as a bare site
available for that more profitable use, and the tenant would thenceforth
have to pay rent assessed on that footing, even though the tenant would not
be able to put the property to the more profitable use but would remain
restricted by the terms of the lease to using the property as a public
house.

The question
raised on this appeal is one of construction of a rent review clause in a
lease. In answering that question it is axiomatic that what the court is
seeking to identify and declare is the intention of the parties to the lease
expressed in that clause. Thus, like all points of construction, the meaning
of this rent review clause depends on the particular language used,
interpreted having regard to the context provided by the whole document and
the matrix of the material surrounding circumstances. We recognise
therefore, that the particular language used will always be of paramount
importance. None the less it is proper and only sensible, when construing a
rent review clause, to have in mind what normally is the commercial purpose
of such a clause.

His Lordship continues on
page 829 and 830 by stating:

We are
fortified in this view by observations made in several cases. First, this
view accords with comments made in passing in Ponsford v HMS Aerosols
Ltd. [1978] 2 All ER 837, [1979] AC 63. The point now in question
was not in issue there, but in the context of a rent review clause that made
no express direction for the terms of the existing lease to be taken into
account on the review Viscount Dilhorne described the task of the valuer in
these terms ([1978] 2 All ER 837 at 842, [1979] AC 63 at 76):

'Surely it is to assess what rent the demise premises would command
if let on the terms of the lease and for the period the assessed
rent is to cover at the time the assessment falls to be made.' (My
emphasis)

Likewise Lord Fraser said that
'regard must, of course, be had to the terms of the lease', and Lord Keith
made a similar observation (see [1978] 2 All ER 837 at 847, 849, [1979] AC
63 at 83, 86).

Next, there is
the British Gas case. There a rent review clause expressly
provided for the notional letting at each review dated to be a letting
'containing the same provisions (other than as to the yearly rent) as are
herein contained'. The question arose whether the direction to leave out of
account the provision in the actual lease 'as to the yearly rent' was apt to
exclude from the notional letting the fact that the actual lease contained
provisions for future rent review. Sir Nicholas Browne-Wilkinson V-C held
that the direction did not have that effect. Having referred to the general
purpose of a rent review provision, as quoted above, he said ([1986] 1 All
ER 978 at 981, [1986] 1 WLR 398 at 401):

'Such being the purpose, in the absence of special circumstances it would
in my judgment be wayward to impute to the paries an intention that the
landlord should get a rent which was additionally inflated by a factor
which has no reference either to changes in the value of money or in the
value of the property but is referable to a factor which has no existence
as between the actual landlord and the actual tenant, ie the additional
rent which should be obtained if there were no provisions for rent review.
Of course, the lease may be expressed in words so clear that there is no
room for giving effect to such underlying purpose. Again, there may be
special surrounding circumstances which indicate that the parties did
intend to reach such an unusual bargain. But in the absence of such clear
words or surrounding circumstances, in my judgment the lease should be
construed so as to give effect to the basic purpose of the rent review
clause and not so as to confer on the landlord a windfall benefit which he
could never obtain on the market if he were actually letting the premises
at the review date, viz a letting on terms which contain provisions for
rent review at a rent appropriate to a letting which did not contain such
a provision.'

Vinelott J, adopted much
the same approach in Pearl Assurance plc v Shaw (1985) 274 EG 490
at 492. In a cogent passage he said:

'I
think the court should lean against a construction which requires the rent
fixed on revision to be ascertained without regard to the use which, under
the lease, the tenant is to be entitled to make of the demised premises,
unless, of course, that intention is spelled out in reasonably clear terms.
Otherwise, the effect of the review might be to impose on a tenant on
obligation to pay a rent appropriate to a very profitable use, but one very
obnoxious to the landlord, and one which he had been careful to forbid in
the strongest possible terms-the effect, that is, of making the tenant pay
for something which he not only has not got, but which he cannot require the
landlord to give him.'

A similar approach was
adopted in the unreported decision from Ontario, in Revenue Properties
Company Limited v. The Board of Regents of Victoria University[1993]
O.J. No. 843, DRS 94-00006 where Adams J. concurring with Steele J. and McMurtry
A.C.J.O.C. stated:

It
would be unreasonable to assume rent was intended to be based on a value the
tenant could never exploit due to the very existence of the
lease.

V. The Experts

One of the guidelines which
assists an arbitrator in determining the usefulness of the appraisal reports and
all evidence provided by experts centres upon the framework of principles and
the assistance of the expert reports.

The value of experts have been dealt with in two decisions of the English
courts, namely: University of Warwick v. McAlpine [1988] 42 BLR 1; The
Ikarian Reefer [1993] 2 Lloyds Rep. 68

Michael Black, Q.C., in his article Experts' Report II, which was reported in
Arbitration, The Journal of the Chartered Institute of Arbitrators,
Volume 62, Number 2, May 1996. Mr. Black recapped the criteria dealing with
experts as found in these two cases:

Expert evidence should be, and seen to be, the independent product of
the expert uninfluenced as to form or content by the exigencies of
litigation.

Experts should provide independent assistance to the Court by way of
objective unbiased opinion in relation to matters within the expertise.

Expert witnesses should never assume the role of the advocate.

Expert witnesses should state the facts upon which their opinion is
based. They should not omit to consider material facts which could detract
form their concluded opinion.

Experts must make it clear when a particular question falls outside
their expertise.

If the opinion of experts is not properly researched because they
consider insufficient data is available, then this must be stated with an
indication that the opinion is no more than a provisional one. In cases where
expert witnesses who have prepared a report cannot assert that the report
contains the whole truth and nothing but the truth without qualification, that
qualification should be stated in the report.

If after the exchange of the reports, expert witnesses change their
view on a material matter having read the other side's experts' report, or for
any other reason, such change of view should be communicated (through the
party's representatives) to the other side without delay and, when
appropriate, to the Court.

Where expert evidence refers to photographs, plans, calculations,
analyses, measurements, survey reports or other similar documents, these must
be provided to the opposite party at the same time as exchange of reports.

Where experts alter their views at a late stage, or introduce a wholly
new theory or interpretation, the new approach should be reduced to writing
and furnished to the other side at the earliest possible opportunity, so that
all the relevant experts can give the matter due consideration and, in a
proper case, meet to define what is common ground and where they differ.

If a report contains the evidence or expertise of some person other
than the apparent author, that person and the contribution should be
identified so that, at the very least, such person can be tendered for
cross-examination. The situation should not be confused with that of the
leader of a team of investigators or of laboratory research assistants under
the author's control: compare, the conjunction of architect and chemist, with
a team leader from a testing organisation.

VI. A Non-Exhaustive List of Factors To Be Considered by
Counsel, the Appraiser and the Parties in Their Submissions Before an
Arbitrator

The first seven points have been extracted from an article titled "The
Arbitration of Rent in a Commercial Lease" by David B. Greenspan, Q.C., of
Toronto, Ontario and published in the Law Society Gazette of that
Province some years ago. He states that there are seven simple rules to follow:

The history of allegedly comparable space.

Are the square feet comparable?

Never assume the market rent is the contract rent.

Walk every square foot in and around the allegedly comparable property.

Get the lease.

Don't forget to dig deeply into tenant improvements.

Check closely the dates of comparable leases.

I have added as an
Appendix to this paper, Mr. Greenspan's comments with regard to those seven
points. Further points to consider are:

Section 1 of the Act defines a lease as a commercial agreement and,
therefore, pursuant to s. 2, the Act applies to an arbitration agreement in a
commercial lease.

Sections 5, 6 and 7 deal with pre-hearing matters, giving the authority to an
arbitrator to require the advance production of documents, examination and
production of records and evidence, including the right to issue a subpoena to a
witness.

Pursuant to s. 9 of the Act, an arbitrator may, during an arbitration, make
an interim award.

Section 11, dealing with costs, was amended in its entirety to grant the
arbitrator the authority to make an order as to costs. The order as to costs is
not limited to those costs which are set out in the Supreme Court Rules, but are
significantly broader in scope. I believe this amendment was made in order to
clarify the issue of costs after the decision in Ridley Terminals Inc. v.
Minette Bay Ship Docking Ltd., et al., B.C. Court of Appeal, (B.C.C.A.)
Number CA011504, April 10, 1990.

Section 22 of the Commercial Arbitration Act should be addressed at
the time of the drafting of the lease. That section requires the parties to
govern themselves by the rules of the British Columbia International Commercial
Arbitration Centre for the conduct of domestic commercial arbitrations unless
the parties (meaning all of the parties) to the arbitration have otherwise
agreed. This matter was addressed in a decision before the Honourable Mr.
Justice Scarth in Taylor v. Taylor, Vancouver Registry Number A893152,
July 13th, 1990, and again by his Lordship on June 28th, 1991 in Mitsui &
Co. (Canada) Ltd. v. Coldform Industries, Vancouver Registry Number A910859.
For a copy of those rules, I suggest that you promptly contact the British
Columbia International Commercial Arbitration Centre at Suite 670 - 999 Canada
Place, World Trade Centre, Vancouver, B.C., Canada, V6C 2E2, (604) 684-2821.

Section 28 of the Act allows interest pursuant to the Court Order Interest
Act and the Interest Act (Canada). However, the courts have long held
that an arbitrator had the power to award prejudgment interest. See Westcoast
Transmission Company Limited v. Majestic Wiley Contractors Ltd., 38 B.C.L.R.
310 (B.C.C.A.) and William Pankiw et al. v. John Pankiw et al., Supreme
Court of British Columbia, Vancouver Registry Number C862144, C.J.S.C., February
18, 1987.

The award may be enforced by obtaining leave of the court pursuant to s. 29
and the judgment may be entered on the terms of the award.

VIII. Conclusion

The genesis of a successful
conclusion for your client lies not only in the preparation and presentation of
your client's case, but also, and perhaps more importantly, in the preparation
and drafting of the appropriate option to renew clause to be contained in the
lease itself. In most cases, this is a fait accompli.

In the case where agreement on the lease has yet to be reached, careful
consideration should be given to the drafting of relevant terms, including
answers to the following questions:

What are the relevant considerations to be taken into account by the
arbitrator? Is he to take into consideration tenant improvements? What is
meant by improvements?

Is he to regard or disregard goodwill?

Are the comparables to be within a certain industry?

Is he to disregard the other uses to which the premises may be put
pursuant to the use clause in the lease?

Is he to base the valuation on vacant possession?

What test is to be applied regarding fixtures and are they to be
disregarded in the valuation?

Is the rent to be modified upwards only?

Is the new rent to take place immediately at the end of the initial term
or previous renewal period?

Is interest to be applied to the new rent where the arbitrator's decision
is made months after the commencement of the renewal period and if so, at what
rate?

Are the parties entitled to envoke the Commercial Arbitration Act
or does the lease make provisions which modify the applicability of certain
sections of the Commercial Arbitration Act?

Is the Commercial Arbitration Act to apply based upon the powers
for arbitrators as set out in the Act or will the domestic commercial
arbitration rules apply pursuant to s. 22 of the Act?

How does one deal with the fact that the tenant may exercise its option
six months prior to the end of the term of the lease, but after exercising its
option and having that option accepted by the landlord, the tenant then
breaches the provisions of the lease during the remaining portion of the term?

Is the rent renewal clause properly drafted so that there is some
procedure available if the parties cannot come to an agreement? In Geary v.
Clifton Co. Ltd., [1928] 3 D.L.R. 64, the courts held that there was no
enforceable option where the option to renew clause simply contained the words
"rent shall be agreed upon between the parties."

In Dagny
Development Corporation v. Ocean Fisheries Ltd., Vancouver Registry Number
C910985, the Honourable Mr. Justice Paris granted an order for the appointment
of a special referee pursuant to Rule 32 of the Rules of Court, where the
renewal clause stated "Rental to be determined (by the lessor) on the basis of a
fair return on fair market value of land." In that case, the lessor obtained an
appraisal on the basis of fair return on fair market value of land. The tenant
disagreed and made application to the Supreme Court for the appointment of a
special referee for the determination of the rent and was successful.

The purpose of this paper is to set out some of the relevant factors, from a
practical point of view, which must be considered in the preparation of a rent
renewal dispute between two parties who will have a continuing relationship.

I have not attempted to set out an exhaustive list of considerations, but
simply to set forth the variables which must be considered in the process so
that you may advise and guide your clients accordingly. Hopefully that advice
can be given at the initial drafting stage, as opposed to you being "parachuted"
into an arbitration set for "this coming Friday."

Above all, please remember that arbitration is to be a speedier process than
"going to court". However, I'm reminded of Lord Denning's comments about an
arbitration case which took 14 years where he said in Bremer Vulkan(Bremer
Vulkan v. South India Shipping (1981AC 904 AT 933) he said,

"when I was young, a sandwich-man wearing a top hat used to
parade outside these courts with his boards back and front, proclaiming
"Arbitrate, don't Litigate". It was very good advice so long as arbitrations
were conducted speedily".